Recent Case Sheds Light on Risks of FITO Claim for Capital Gains – Burton’s Case
In Burton’s case, the Full Federal Court examined whether an Australian resident taxpayer could include the entire US tax paid on capital gains from the sale of US investments in their FITO claim. This was despite only a portion of the capital gains being taxable in Australia due to capital losses and the CGT general discount.
Here's a brief overview of Burton’s case:
During the 2011- and 2012-income years, Mr. Burton, an Australian resident for tax purposes, earned capital gains from three investments held in the US by his Australian discretionary trust. Mr. Burton paid US tax on the entire capital gains, at concessional rates for long-term investments (15%) and ordinary tax rates (35%) for others. In Australia, only half of the capital gains (after accounting for capital losses) were taxable at Mr. Burton’s full marginal tax rate due to the CGT general discount. Mr. Burton claimed a FITO, including all US taxes paid, as a credit against his Australian tax.
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